2005

ECONOMY IN EARLY 2005: NO CRISIS, SOME WARNINGS

As we predicted in autumn 2004, the last year brought incredibly high growth rates (GDP, industrial production, exports, retail etc.) for Ukrainian economy. Unfortunately, inflation has also grown significantly. As a result - and as we forecasted - Ukraine has entered a period of simultaneous high economy growth and high inflation rates. Inflationary background includes not only high producer prices (exporters create additional demand), but, first of all, large social payments, mostly pensions. In order to solve the problem of getting "social money" for the state budget, Tymoshenko's government tries to find sources. They include re-privatisation, liquidation of industrial and territorial taxation privileges, and also setting up new administrating of existing taxes and introduction of new duties and obligatory collections. No doubts government will get enough money to perform social promises. Results of they will be both bad (higher inflation) and good (stimulation of domestic market). Structural changes in economy keep on: it becomes more targeted to internal markets. Besides, export sales will be kept as high as now (or more), while no serious financial crisis should be expected. All that mean Ukrainian economy is still on the peak of its business cycle. Signs of decline can appear only from the second half of this year.